Personal allowance thresholds before paying tax

topsurgeon

After retirement we are trying to maximise interest on our savings without incurring tax or having to complete self assessment tax returns. We are both aged 64.

• I have an annual gross pension of £49270 (£41932 after tax)
• My wife has no pension and no income.
• We have no additional income from work or investments.

We have £230,000 savings, of which £40,000 is in 2 cash ISAs and the remaining in low interest accounts.

What are the personal savings allowances that we can use before we pay tax on savings interest ?

What will be the triggers to have to submit tax returns.

Bookworm105

so you have £190,000 of cash savings outside an ISA 
your wife has zero income in her name, so her entire £12,570 of personal allowance is utterly wasted 

You state the non ISA savings are "low interest" accounts, what rate do you actually get????
At 6.5% interest rate 190k would generate 12,350 of interest, so fully covered by her PA meaning she pays zero tax 

put all non ISA cash savings in the wife's name and she would still have a further £220 of income she could get tax free before she even begins to have to think about the savings rate bands

In principle an individual with no other income can receive a max of £18,570 of interest (only) without having to pay one penny of tax , ie £12,570 tax free personal allowance + £1,000 (basic rate taxpayer savings allowance) + £5,000 (interest taxed at starter band rate of 0%)

in your case, because you are a taxpayer with a high pension you yourself will only get the £1,000 (basic rate taxpayer savings allowance). The starter rate does not apply as your income is already more than 17,570 (PA + 5k starter band ignoring 1k allowance). Also be aware that is your income (pension + interest) exceeds  £50,570 you become a higher rate taxpayer and your interest allowance reduces to £500, not £1,000

reading:
Starting rate for savings | Low Incomes Tax Reform Group (litrg.org.uk)

Self Assessment tax returns: Who must send a tax return - GOV.UK (www.gov.uk)

Strummer22

Bookworm105 said:

in your case, because you are a taxpayer with a high pension you yourself will pay tax on every penny of interest received. There is zero tax free interest in your case because the starter rate does not apply as your income is already more than 17,570

OP (and their wife) still get the personal savings allowance, £1,000 for basic-rate taxpayer and £500 for a higher rate tax payer. https://www.gov.uk/apply-tax-free-interest-on-savings.

Albermarle

As above the obvious strategy would be to put the large majority of savings in your wife's name.
She can earn up to £18750 in interest without paying tax, and you can only earn £1000.
However following points should be noted.
1) Anyone earning more than £10K in interest has to fill in a self assessment, regardless of their tax position. I think this is due to be reviewed, but I do not think this has happened yet.
2) In two years time you will both presumably be getting a full state pension? This will reduce the interest your wife can earn tax free to approx £7500, and you to £500. However in the meantime you can switch another £40K pa into Cash ISA's
3) Are they all easy access accounts? Fixed term accounts put another variable in the mix as in when the interest is reported to HMRC
4) and the remaining in low interest accounts. Regardless of tax you should be maximising interest earned.

Bookworm105

Strummer22 said:

Bookworm105 said:

in your case, because you are a taxpayer with a high pension you yourself will pay tax on every penny of interest received. There is zero tax free interest in your case because the starter rate does not apply as your income is already more than 17,570

OP (and their wife) still get the personal savings allowance, £1,000 for basic-rate taxpayer and £500 for a higher rate tax payer. https://www.gov.uk/apply-tax-free-interest-on-savings.

thanks for reminder, I was too focused on the starter rate info and forgot the real start point 🙄
now edited previous post for clarity 

Dazed_and_C0nfused

Albermarle said:

As above the obvious strategy would be to put the large majority of savings in your wife's name.
She can earn up to £18750 in interest without paying tax, and you can only earn £1000.
However following points should be noted.
1) Anyone earning more than £10K in interest has to fill in a self assessment, regardless of their tax position. I think this is due to be reviewed, but I do not think this has happened yet.
2) In two years time you will both presumably be getting a full state pension? This will reduce the interest your wife can earn tax free to approx £7500, and you to £500. However in the meantime you can switch another £40K pa into Cash ISA's
3) Are they all easy access accounts? Fixed term accounts put another variable in the mix as in when the interest is reported to HMRC
4) and the remaining in low interest accounts. Regardless of tax you should be maximising interest earned.

@Albermarle do you work for Rachel Reeves 🧐